Ladies and Gentlemen of the Press, welcome to the press briefing following the 43rd meeting of the Monetary Policy Committee, the first for this year. Let me take the opportunity to wish you all a successful New Year. I wish to share with you the assessment of the MPC on the economy and the outlook for inflation.
The Committee reviewed global economic developments in 2010 and the outlook for 2011. With respect to the domestic economy, we examined factors underlying inflation conditions, the implementation of the 2010 budget, the growth outcome for 2010 and prospects for 2011. In addition, the Committee assessed developments in the financial system and the external sector and evaluated results of the business and consumer confidence surveys conducted in January 2011.
Global Economic Developments
Global economic conditions showed a rebound as economic activity in emerging and developing economies remained strong and continued to drive world growth. Among the industrial economies, growth appears more solid in the United States as a result of the policy of Quantitative Easing. In the Euro Area, prospects for recovery are being hindered by the sovereign debt crisis and tight fiscal and financial conditions.
Growth in the emerging markets in Asia and South America is expected to decline as the authorities tighten policy in the face of inflationary pressures.
In the West African Sub-region, the countries of the West African Monetary Zone have recorded improved economic outcomes during 2010. Economic performance remained robust within the WAMZ countries and output turned out stronger at 7.2 percent in 2010 compared to the 4.5 percent recorded for Africa as a whole. Inflation pressure dampened and was projected at 11.3 percent at the end of 2010, down from 12.3 percent at the end of 2009. With proper coordination of domestic policies and external sector stability, medium term prospects for growth remain positive across the sub-region.
Inflation and Output
The Ghana Statistical Service (GSS) has released two readings of CPI inflation since the Monetary Policy Committee meeting held last December. Inflation, which stood at 9.1 per cent in November 2010, eased considerably to 8.6 percent in December 2010 and picked up to 9.1 percent in January 2011, mainly on account of the increase in the prices of petroleum products announced in the first week of January. Food inflation was 5.3 percent in November 2010. It dropped to 4.5 percent in December 2010 but picked up to 4.8 percent in January 2011. Non-food inflation followed a similar pattern, falling from 11.5 per cent to 11.2 percent in December increasing to 11.8 percent in January 2011.
Of the 12 components in the consumer basket, the transportation sector recorded a significant jump in prices from 2.6 percent in December 2010 to 19.4 percent in January 2011 and this was the main driver of the rise in overall inflation. The remaining 11 components recorded declining inflation rates.
In year–on-year terms, the Bank of Ghana Composite Index of Economic Activity (CIEA) registered a growth of 10.5 per cent in 2010 compared to 9.6 per cent in 2009. Commercial Banks Credit to the private sector, Industrial activity, level of imports, construction sector activity, tourist arrivals, social security contribution, sales of key manufacturing establishments and port and harbour activity are some of the sectors that contributed to the increase in the index relative to the pace observed a year ago.
Consumer and Business sentiments moved in opposite directions in the latest survey conducted in January 2011. While that for consumers declined, business confidence improved. The survey suggests that the reduction in consumer confidence can be attributed to increased crude oil prices and the immediate impact of the recently petroleum price hike. However, optimism about general economic prospects, realization of expectations and companies’ prospects contributed significantly to the positive assessment of businesses.
Government’s Fiscal Operations
Our analysis of Government operations was based on the narrow coverage and comparisons to GDP are with respect to the re-based GDP. Preliminary data from the Bank of Ghana on the implementation of the 2010 budget indicate the following:
- On a narrow coverage basis, Government budget operations ended in a deficit of GH¢1.7 billion (3.7% of GDP) compared with the target of GH¢1.3 billion (2.9% of GDP).
- The Tax-GDP ratio of 13.3 per cent of GDP narrowly missed the target of 13.4 per cent.
- Total expenditure for 2010 was GH¢8.8 billion (19.7% of rebased GDP) was 1.3 per cent above the target of GH¢8.3 billion.
- The deficit of GH¢1.7 billion together with net foreign loan repayment of GH¢30 million and TOR Debt Financing of GH¢445 million created a resource gap of GH¢2.1 billion (4.8% of GDP).
Source: Bank of Ghana
For more information visit http://www.bog.gov.gh/privatecontent/public/File/MPAFSD/MPC%20%20Press%20Release%20-%20February%202011.pdf
